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Future of ethanol looks cloudy in Congress

The ethanol industry has had many friends in Congress over the years who have given it preferential treatment. But a key vote last week in the U.S. Senate suggests a tight federal budget is making those friends more scarce.

A subsidy known as the ethanol blender credit has drawn the ire of lawmakers. The credit gives oil companies 45 cents a gallon to blend ethanol with gasoline and adds up to more than $5 billion a year.

Senators voted 73-27 to eliminate that subsidy, although the underlying bill that amendment was attached to was filibustered and did not pass.

“I think it means that the ethanol lobby, their clout is waning and political support is wavering a little bit.”

Sheila Karpf, Environmental Working Group

Ethanol supporters downplayed the vote and the amendment, which was sponsored by Sens. Tom Coburn (R-OK) and Dianne Feinstein (D-CA).

"Last week's activity in the Senate was little more than theater and it wasn't particularly good theater at that," said Matthew Hartwig, spokesman for the Renewable Fuels Association, one of three ethanol trade groups.

But ethanol critics, such as Sheila Karpf at the non-profit Environmental Working Group, were elated.

"I think it means that the ethanol lobby, their clout is waning and political support is wavering a little bit," Karpf said.

The ethanol industry said the tax credit helped make ethanol-blended fuels cheaper at the pump. Farmers and ethanol producers profited because of higher demand for the corn-based fuel.

WANING SUPPORT

Many in the industry saw the writing on the wall and supported an end to the tax credit, hoping that it could be phased out over several years.

For DFL Senator Amy Klobuchar, the industry's attitude is helpful as she negotiates with Coburn and Feinstein to retain some government support for the industry.

"I keep emphasizing to people, even people who aren't fans of biofuel, this industry has been willing to come up to the plate," Klobuchar said. "I'd love to see oil do this."

Klobuchar has co-sponsored a bill with Sen. John Thune (R-SD) to end the blender credit but instead give $1.5 billion worth of tax credits for ethanol infrastructure, such as gas stations that install pumps that can mix greater quantities of ethanol with gasoline.

Their legislation would also include more tax breaks for cellulosic ethanol made from switchgrass and other alternatives to corn. Klobuchar also said it could include assistance for gas stations that install electric car charging stations.

Those measures don't impress environmental critics.

"Our country does not have any money to put towards blender pumps right now," said Karpf of the Environmental Working Group. "We're cutting programs left and right and now we're saying we want to spend money on something else in addition to all the taxpayer subsidies that have already been given to the corn ethanol industry. It's simply not needed."

Karpf and other environmentalists say that if the government helps gas stations install blender pumps, it will lock in ethanol's role in transportation rather than allowing alternatives such as natural gas a chance to compete.

That position has some support in the U.S. House of Representatives, which last week voted on a bipartisan basis to cut federal support for blender pumps.

LOSING THE LOBBY

The ethanol industry also can no longer rely on other parts of the agriculture lobby for support.

Much of the food industry, including livestock and poultry farmers, has come out against ethanol subsidies, arguing that the use of corn as a transportation fuel has made animal feed too expensive

One of the leading voices on agriculture in the House, Minnesota Democrat Collin Peterson, warned that the breakdown in support for ethanol would hurt the entire agricultural sector.

"It's a big problem and it's much bigger than ethanol because this has the makings of taking apart the entire coalition," said Peterson.

In the past, Peterson said the entire agricultural community was united around farm policy and worked closely with urban liberals interested in cheap food.

Peterson also warned that the ethanol industry faced challenges beyond the blender credit. Another pillar of government support for the industry is the renewable fuel standard that requires ethanol be mixed with gasoline and diesel.

This year, nearly 14 billion gallons of biofuels, most of which is corn-based ethanol, are required to be blended with gasoline.

Some people want to eliminate that requirement, Peterson said. "That would really be a big deal."

Corn state senators are scrambling to protect what they describe as a key industry in their states.

The Minnesota Department of Agriculture estimates that ethanol supports more than 8,000 jobs in the state and generates more than $3 billion of economic activity.

"For the Midwest, this is a big part of our economy," Klobuchar said. "And when you look at these biofuel plants in Minnesota, they are a major employer in so many small and mid-sized towns and to destroy them is to destroy some of these towns."

Those arguments once worked, especially when ethanol supporters were able to frame the debate as one about domestic versus imported energy.

"If you're in the bucket of budgets, nobody wins," said Jim Nussle, a former Iowa Congressman who is now the president of Growth Energy, another ethanol trade group.

Nussle said the challenge the industry faces now is that the debate underway now makes no reference to energy policy, focusing only on budgetary matters.

Without Congressional action, the blender credit is set to expire this year, along with another favored industry policy, a tariff on imported ethanol.